Rishi Sunak is facing a big test of his authority as he agonises over whether he can sell an outline deal on the Northern Ireland protocol to pro-UK unionist politicians in the region and Eurosceptic Tory MPs.

After months of talks, negotiators have briefed Sunak, the UK prime minister, that a deal is taking shape to resolve the dispute over post-Brexit trading arrangements in Northern Ireland. “It’s getting close,” said one person briefed on the talks.

Downing Street insisted on Tuesday that no deal had been reached and said “intensive scoping discussions” were still taking place. Number 10 said ministers and Sunak had been briefed on the progress.

Tory Eurosceptics warned they would not accept any deal that left the European Court of Justice with any role in UK territory: under the protocol Northern Ireland remains part of the EU single market for goods.

One Tory MP said Boris Johnson would be at the forefront of a rebellion if Sunak gave too much ground. Johnson’s spokesperson insisted the former premier was “fully supporting the government”.

Several people close to the negotiations said the EU had agreed in principle to a system of “red and green lanes” to reduce the need for checks on goods travelling from Great Britain to Northern Ireland but that discussions were continuing over crucial details covering the scope and operation of the lanes.

Goods crossing the Irish Sea and intended for sale on UK territory in Northern Ireland would pass through a green lane with reduced physical checks, backed by real-time customs data. Goods destined for the Republic of Ireland and the EU would enter via a red lane and face full customs and regulatory checks.

British officials have indicated the UK could be prepared to accept some continuing but reduced role for the European Court of Justice in Northern Ireland. Some have noted that it is uncontroversial for French border officials to conduct checks on passengers at Eurostar and ferry terminals in Britain.

Despite the upbeat reports, three EU officials said a deal was still a significant way off. The European Commission declined to comment.

An internal briefing of EU diplomats in Brussels was told on Tuesday that all the outstanding areas of discussion between the two sides were still under review, including VAT rules, customs, state aid, the role of the ECJ and the terms of operation for the “red and green” lanes.

According to an EU official, a meeting of the UK Working Party in Brussels at which EU member state diplomats were briefed by European Commission officials on the progress of the negotiations was told that “real difficulties persist” between the two sides.

EU diplomatic sources said another initiative being considered, in order to help the Democratic Unionist party accept the deal, is that the Northern Ireland Assembly could be included in the UK-EU Parliamentary Partnership Assembly (PPA) that was set up in order to give the UK and European parliaments a role in the institutional structures governing the post-Brexit UK-EU relationship.

One person briefed on the talks told the Financial Times a compromise had been reached that would entail disputes concerning the EU single market being heard firstly in Northern Ireland’s courts, with the possibility that they be referred up to the ECJ.

However, Downing Street insiders said the proposal, first reported by The Times on Tuesday night, was not under consideration.

But some on the British side insist any compromise could leave the ECJ with a role, albeit reduced because any new customs agreement would “cut the amount of EU law” in Northern Ireland.

One diplomat said: “To solve this, both sides have got to focus on what really matters to people. Most people in Northern Ireland are not worrying on a daily basis about the role of the ECJ.”

British officials are confident the outline deal will meet the “seven tests” laid down in 2021 by the DUP, which hates the protocol because it imposes an internal trade border in the UK.

The DUP, which is boycotting Northern Ireland’s elected assembly in protest over the protocol, did not explicitly demand the ending of ECJ jurisdiction in its seven tests for assessing any changes to the protocol.

However, Tory Eurosceptic MPs in the European Research Group say the DUP’s demands, which include removing “a border in the Irish Sea”, imply the ending of EU law and the role of the ECJ.

Sunak, weakened by the Nadhim Zahawi scandal, will have to make a big judgment call on whether the putative deal can persuade the DUP to re-enter the Stormont power-sharing executive and avoid splitting his own party.

The prime minister wants to end the corrosive dispute with the EU, which has damaged relations between the two sides, including blocking British scientists participating in the €95bn Horizon Europe research project.

Additional reporting by Andrew Bounds in Brussels